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JOURNAL OF BUSINESS LOGISTICS, Vol. 15, No.

1, 1994 71

LOGISTICS INFORMATION SYSTEMS: THE STRATEGIC


ROLE OF TOP MANAGEMENT

by

Edward J. Bardi
T. S. Raghunathan
The University of Toledo
and
Prabir K. Bagchi
George Washington University

The environment in which managers operate today is radically different from


that of their predecessors. Consequently, the demand on today's management is
markedly different. Bartlett and Ghoshal' argue that corporations that once succeeded
with one-dimensional strategies have been forced to broaden their outlook for success
in the changed environment.
It is common in today's environment for a company to design a product in
one country, source in another, manufacture and assemble in yet another, and finally
sell globally. In its simplest form, logistics is a transaction-intensive function tying
together this spatially diverse operation. With the added diversity in global business,
logistics poses a formidable challenge to manage effectively and efficiently a longer
logistics pipeline involving multiple countries. The need for efficient information
processing is essential to meeting this task.
The importance of logistics as a critical link in today's business environment
has increased as firms implement the Just-In-Time (JIT) business philosophy. The
JIT impact on logistics has been discussed by many authors, who have pointed
to the essential role of logistics as the provider of consistent, low lead time, damage-
free deliveries.^ Shipments are being made within narrow time limits to effect cost
advantages in manufacturing and inventory, while transportation providers and
vendors are called upon to meet exacting time demands requiring efficient logistics
information systems (LIS).
72 BARDI, RAGHUNATHAN, AND BAGCHI

LOGISTICS INFORMATION REQUIREMENTS

With the change in business from national to transnational, the need for a
LIS is being recognized as an essential ingredient for success in today's global
marketplace. As logistics channels become longer and more complicated, involving
more channel members, efficient coordination becomes the key to effectiveness.
The LIS employed by a company determines the efficiency and competitiveness
of the company in the marketplace. The ability to optimize logistics costs and
service levels is affected by the LIS. Today's managers require information regarding
both the spatial and temporal dimensions of a company's raw materials and finished
products. Such knowledge enables optimizing the cost of moving and storing products
as well as satisfying customer demands. In addition, a competitive advantage is
obtained in the marketplace by companies that produce better logistics service at
lower logistics costs.
The implementation of a LIS is motivated by a number of objectives including
logistics service optimization, cost optimization, information integration, and
customer linking. As companies attempt to compete in world markets, considerable
attention is directed toward the quality of logistics service that can be utilized
to differentiate the product in the marketplace. The physical completion of the
sales transaction creates logistics service, acceptable or unacceptable to the customer.
To satisfy customer logistics service requirements, companies are proactively
managing logistics service levels by monitoring service levels of specified,
quantifiable performance criteria. A LIS is a critical link in the provision of service
performance measurements and the achievement of customer logistics service
satisfaction.
The level of customer service provided by logistics is constrained by the cost
of providing the logistics service. Optimization of logistics costs requires an analysis
of the multiple logistics system component options that can be developed to achieve
a desired logistics service goal. The various logistics system designs require varying
amounts of resources and incur differential costs. Achievement of cost optimization
for a desired level of logistics service necessitates an information system that is
capable of providing cost data relative to existing performance so that system control,
modification, and comparison with the cost of alternative systems are possible.
The integration of information from varied sources within the company is a
goal that many companies are establishing. Information integration makes available
JOURNAL OF BUSINESS LOGISTICS. Vol. 15, No. 1, 1994 73

to management from one or a limited number of sources multiple bits of information


that previously were generated, analyzed, and stored by many throughout the
organization. The integrated information source permits management to examine
the operation of the organization in total, not in a fragmented, functionally isolated
basis. Logistics cost and service are of considerable importance to the overall quality
and efficiency of the operation, and logistics information is a critical component
for integrated information.
Finally, the advent of the partnership philosophy governing the seller-buyer
relationship has motivated companies to establish a LIS so as to provide the customer-
desired logistics information and treinsactional activities. As the partnership concept
matures, buyers and sellers are linked by computer for such logistics activities
as inventory level determination, order placement, order status, order release,
shipment routing, and shipment delivery status. A LIS is critical to the achievement
of this level of buyer-seller coordination.
The need for logistics information to achieve these objectives results in the
development of a LIS, for which top management support is an essential requirement.^
Without top management support, the needed resources for an effective information
system will be unavailable"* and the LIS will be ineffective in meeting strategic
objectives.
Top management support of a LIS is influenced by corporate logistics goals,
competitive environment, and strategic importance of information. The purpose of
this study was to test the relationship of top management support for LIS to corporate
and logistics strategic and operational variables. For example, one would expect
greater top management support of LIS where the need is high to achieve corporate
logistics goals of improved service levels, lower costs, improved information links
with customers and vendors, and customer partnerships. Likewise, one would expect
top management to be supportive of LIS in an environment where logistics service
levels and operating performance are of strategic importance.
In addition, top management must examine the cost and benefit of LIS. If
the perceived cost/benefit ratio is low, top management will be less willing to support
and to commit resource to a LIS. The value-added of a LIS must be positive in
the eyes of top management for top management to support a LIS. And without
top management support, it is unlikely that a LIS will be developed.
The purpose of this paper is to present the findings of a study examining
the factors that affect top management support of a LIS.
74 BARDI, RAGHUNATHAN, AND BAGCHI

METHODOLOGY
A mail questionnaire was used to assess the relative importance logistics
managers assigned to variables identified as impacting the development and
implementation of a LIS. From a review of the MIS and LIS literature, specific
questions were developed regarding top management support for and knowledge
of LIS, strategic development portfolio of systems, and strategic impact of existing
operating systems.^ The content validation of the preliminary questionnaire was
conducted by two logistics experts.
The questionnaire and a letter explaining the purpose of the study were mailed
to 800 logistics management executives randomly selected from the Council of
Logistics Management membership roster. A total of 145 usable responses was
received and provides the basis for the statistical analyses performed and conclusions
drawn.
Table 1 provides an analysis of the respondents based on industry, company
sales, and respondent title. As Table 1 indicates, the sample consists of a large
number of manufacturing organizations (50% of all respondents), firms with sales
exceeding $100 million (72% of all respondents), and middle-upper management
level respondents (77% of all respondents).
A five point rating scale was used to measure the respondent's perceptions
regarding questions of his/her company's strategic vision and logistics operations
and functions. To check if the respondents were reading and understanding the
question prior to responding, some questions were negatively worded. All questions
were given equal weight and the indices of the different variables were calculated
by determining the mean rating score for the question.
Factor analysis was used to identify variables that refiected a given factor and
the factors were named based upon the items that loaded on the factors. The factor
loadings were 0.6 and above for all the items. The set of items constituting top
management support for and knowledge of LIS was independently factor analyzed
and all the items loaded on a single factor. Table 2 contains the nine factors identified
and the constructs loaded on each factor.
To determine the reliability of the constructs, Cronbach's alpha was computed
for each of the constructs and these values are given in Table 2 along with the
relevant items measuring the constructs. Most of the reliability values are close
to or above 0.70 that is considered acceptable for this type of research.
JOURNALOF BUSINESS LOGISTICS, Vol.15, No.l, 1994 75

TABLE 1

CHARACTERISTICS OF RESPONDENTS

Frequency % Total
Industry Affiliation
Manufacturing 72 50
Wholesale/Retail Trade 22 15
Transportation Provider (Carrier) 15 10
Other 36 25
Total 145 100
Company Sales ($ millions)
Less than $25 18 13
$25-$50 9 6
$50-$ 100 8 6
$100-$250 29 20
$250-$500 22 15
$500-$ 1,000 29 20
Over $1,000 25 17
Missing 5 3
Total 145 100
Respondent Title
President 26 18
Manager 70 48
Director 26 18
Other 16 11
Missing 7 5
Total 145 100
76 BARDI, RAGHUNATHAN, AND BAGCHI

TABLE 2

FACTORS, ITEMS, AND RELIABILITY VALUES

t. Top management awareness of and support for LIS: (Reliability = 0.90)


a. Top management supports LIS
b. Top management is knowledgeable of LIS
c. Top management is involved in development of LIS
d. Top management understands the importance of LIS
2. Distribution optimization systems: (Reliability = 0.83)
a. We have effective just-in-time systems between distribution,
manufacturing, and suppliers
b. We have computer information systems to track maintenance
schedules of our equipment
c. We have computer information systems to track driver schedules
and utilization
d. We have algorithms to select lowest cost distribution points
e. We have systems to evaluate optimum warehouse locations
3. Cost optimization systems: (Reliability = 0.78)
a. Our vehicle routing systems minimize transportation costs
b. We have traffic management systems to select optimal
transportation carriers
c. We have effective centralized control to minimize costs
d. We have effective centralized control to minimize inventory
4. Information integration: (Reliability = 0.82)
a. We have ability to provide significant information to customers
during order taking session
b. We have systems interface to manufacturing and marketing to
provide accurate future delivery information
c. We have the ability to quickly retrieve backorder status
d. We have forecasting models linked to manufacturing and
purchasing systems to minimize backorders
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TABLE 2 (Continued)
5. Strategic impact application development portfolio: (Reliability = 0.88)
a. LIS is being used strategically by our oi;ganization
b. New technologies are used in LIS applications
c. LIS is used to develop new areas of application
d. LIS offers significant tangible benefits through improved
operational efficiencies
e. LIS has offered new ways for the company to compete
6. Strategic impact of existing operating systems: (Reliability = 0.80)
a. LIS is critical for the smooth functioning of our oiganization
b. Breakdown of LIS will critically affect our organization's
performance
7. Comparative organizational performance: (Reliability = 0.87)
a. Our profits have been generally above the industry average
b. Our return on assets have been generally above industry average
c. Our inventory turnover ratio has been generally higher than
industry average
8. Use advanced information systems: (Reliability = 0.72)
a. We heavily use decisions support systems in our operations
b. We heavily use expert systems in our operations
c. We heavily use 4th generation language in our operations
d. We use integrated MRP II system to run our business
9. Limited information systems application: (Reliability = 0.82)
a. Our use of information systems is limited to electronic mail only
b. Our use of information systems is limited to some application
using spreadsheet software only
c. Our use of information systems is largely restricted to applications
like spreadsheet. E-mail, and payroll
78 BARDI, RAGHUNATHAN, AND BAGCHI

In Table 2, the top management support factor loadings reflected top


management's support, knowledge, development involvement, and importance
recognition of LIS. The responses to these questions pertaining to top management
support were dichotomized into group 1companies with low top management
support and knowledge of LISand group 2companies with high top management
support for and knowledge of LIS. A total of 68 respondents indicated low top
management support and 72 indicated high top management support.
Significant differences between groups representing high and low top
management support for and knowledge of LIS were tested using the T-tests on
the mean values of all factors of interest between the two groups. Table 3 indicates
the LIS factors, the mean response for groups that had low and high top management
support, and the level of significance between the mean responses.

DISCUSSION OF FINDINGS

As shown in Table 3 significant differences exist between the means of the


two top management support groups and eight factors. For discussion purposes
these eight factors have been grouped as follows: (1) logistics objectives factors2
factors, distribution optimization and cost optimization; (2) information systems
importance3 factors, information integration, strategic development portfolio, and
strategic impact of existing operating systems; (3) company performance
measurement1 factor, comparative organizational performance; and (4) information
system use2 factors, use of advanced information systems and limited information
system application.
With regard to the distribution optimization systems factor of the logistics
objective grouping, firms with high top management support for and knowledge
of LIS had higher mean responses than those with low top management support.
Firms with high top management support for LIS have a greater tendency to have
effective JIT systems between distribution, manufacturing and suppliers, computer
information systems to track equipment maintenance schedules and driver schedules,
utilize algorithms to select the lowest distribution points, and systems to evaluate
optimum warehouse locations.
Top management recognizes the essential nature of logistics information to
effective operation of a JIT system, control of logistics equipment and personnel,
and application of quantitative techniques for efficient logistics operations and facility
JOURNALOF BUSINESS LOGISTICS, Vol.15, No.l, 1994 79

TABLE 3

SIGNIFICANT T-TEST RESULTS ON DIFFERENCES BETWEEN


MEANS OF GROUPS BASED ON TOP MANAGEMENT
SUPPORT FOR LIS
Mean/
Factor Group Significance
Distribution optimization systems 1
2 3.19
Cost optimization systems 1 302***
2 3.81
Information integration 1 2.91***
2 3.52
Strategic development portfolio 1
2 3.83
Strategic impact of existing operating systems 1
2 4.18
Use advanced information systems 1
2 3.01
Limited information systems applications 1 178**
2 1.50
Comparative organizational performance 1 2.98^
2 3.30

Significance at p < 0.01


** Significance at p < 0.05
Significance at p < 0.10

Group 1Top management support for and knowledge of LIS is low


68 cases
Group 2Top management support for and knowledge of LIS is high
72 cases
80 BARDI, RAGHUNATHAN, AND BAGCHI

locations. Information is a fundamental variable in any JIT system and the


achievement of cost and service advantages of a JIT system. LIS provides the input
data to enable JIT to operate, to control equipment maintenance and driver utilization,
and to achieve logistics efficiency through strategic distribution points and optimum
warehouse locations.
The T-test for the other logistics objective factor, cost optimization systems,
indicated that firms with top management support of LIS tend to utilize vehicle
routing systems, computer systems to select optimal carriers, and centralized
management to minimize costs and control inventory. In the first two areas, the
companies are utilizing the computer to route vehicles and select carriers, which
indicates a top management support of computerization and the natural follow through
to LIS. For centralized management to function effectively, substantial infonnation
is required and top management support for LIS is a logical outgrowth of the
need for information provided by LIS.
The infonnation systems importance factor of information integration had a
higher mean importance for firms with high top management support than those
with low support. Companies with high top management support of LIS showed
a tendency toward greater ability to provide information to customers during order
taking, to provide accurate delivery infonnation, to retrieve backorder status quickly,
and to utilize forecasting models to minimize backorders. Again one sees the
relationship between the high degree of computerization in a company and the
high recognition of top management for LIS to provide the necessary infonnation
to achieve vital customer communications with information integration.
At the strategic development level, companies with high top management support
for LIS have a greater tendency to use LIS strategically to develop new areas
of LIS application, operational efficiencies, and competitive practices. LIS is viewed
as a management tool that assists the company in making strategic decisions to
improve the company's competitive advantage in the marketplace. The LIS is
perceived as value-added function that is providing tangible benefits that result
in operational efficiencies and innovative competitiveness.
Recognition by top management of information systems importance is found
in the strategic impact of LIS on existing operating systems. For companies with
high top management support for and knowledge of LIS, a higher rating was given
to the critical role of LIS in the smooth functioning of the firm and to the critical
effect a LIS breakdown will have on the company's perfonnance. In companies
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where LIS is an integral element in the overall operation, top management recognizes
the critical role LIS plays in the continued smooth functioning and perfonnance
of the company and, consequently, provides high support for and has high knowledge
of LIS.
With regard to the company performance factor of comparative organizational
performance, firms with high top management support of LIS tended to have profits,
return on assets, and inventory turnover ratios that were generally above the industry
average. The LIS enables management to improve operating controls, which leads
to improved operating performance. The higher operating performance measures
are tangible LIS benefits that give top management the rationale to provide support
to LIS.
Both information systems use factors revealed that the more use the company
makes of information systems and system applications, the greater the top
management support of LIS. Firms with high top management support tended to
use decisions support systems, expert systems, and 4th generation language in their
operations and to use MRP II system to run the business. Conversely, firms with
low top management support tended to limit infonnation system use to electronic
mail, spreadsheet software, and payroll applications.

MANAGERIAL IMPLICATIONS

Top management support is critical to the development, implementation, and


use of LIS. Without top management support LIS will not develop in a company
beyond the stage that meets the mandatory requirements for information to satisfy
financial reporting. The full potential of LIS for improved operational efficiencies
and competitive advantage will not materialize without top management support.
In many leading edge companies, interest in and development of LIS is often
preceded by the need to be competitive in the global marketplace. Spurred by
competitive forces, these companies are looking for better means to satisfy their
customers. In a transaction-intensive function like logistics, managers realize that
information velocity is the real key to achieving higher customer satisfaction. LIS
offers the means to achieve higher information velocity.
Companies like Xerox, IBM, and Motorola are striving to achieve newer heights
by adopting continuous quality improvement programs. They are benchmarking
their operations against the "best in class" companies anywhere in the world. As
82 BARDI, RAGHUNATHAN, AND BAGCHI

a result of this drive to become the best, these companies look for ways to improve
their customer service. Improvement of logistical performance with the aid of LIS
provides an avenue for them to offer better customer service.
In these leading edge firms one very important characteristic in their drive
towards excellence is the involvement and participation of top management. As
a result, it becomes relatively easy to obtain acceptance of all concerned management
and the necessary funding for LIS development. Thus, one sees that a rallying
force such as global competition, ensuring existence in the marketplace, or a continued
drive for excellence and quality for maintaining market leadership position, is
essential for LIS development.
In leading edge companies that decide to develop LIS, the benefits in many
cases are outstanding. Benefits of LIS include reduced costs and attainment of
better customer service. Some companies are able to reduce their order processing
time drastically as a result of a LIS. Others reduce their transportation costs via
better carrier selection and improved vehicle routing and scheduling. By introducing
point of sale capture of infonnation and integrating it into the LIS, Black and
Decker Corporation provides significantly improved service to its major customers.
This improved service reduces the customer's cost of doing business with Black
and Decker, a value-added outcome of a LIS.
The data from the study suggest that firms that provide top management support
for LIS tend to be firms that are on the leading edge and have more advanced
logistics systems. The use of the computer to provide current, reliable infonnation
for distribution and cost optimization decision-making is evident among the firms
that give high top management support to LIS. In addition, these firms have integrated
information from various functional areas to permit improved logistics service and
communication to its customers and to enable management to make optimum logistics
decisions.
The decision to implement a LIS requires careful analysis of the costs and
benefits. The cost of equipment and personnel to develop and operate a LIS is
measured against the value added in terms of improved customer service, operational
efficiencies, and strategic decision-making. For those companies with high top
management support for LIS, operating results in the form of profits, return on
assets, and inventory turnover ratios were above industry averages and indicate
the LIS benefits/costs ratio is greater than one and benefits outweigh costs.
JOURNAL OF BUSINESS LOGISTICS, Vol. 15, No. 1, 1994 83

A LIS developed by a company has value beyond short run operating advantages.
The LIS is an asset that can be deployed into service for other companies and
generate revenues for the developing company. In the long run, the LIS can be
structured as a business unit that sells a service to the parent company as well
as to other companies. This strategic view suggests that LIS is more than merely
a cost center, rather; it is a profit center.

SUMMARY

In this study attention was directed to the relationship between top management
support and knowledge of LIS and the factors that have an impact on this support.
Using a mail questionnaire, respondents were asked to indicate perceptions of top
management support for LIS, logistics operations and function, and strategic vision
of the company. A total of 145 responses were received from a sample of 800
randomly selected members of the Council of Logistics Management.
Companies that have high top management support for and knowledge of LIS
are firms that use LIS data as input into distribution and cost optimization systems,
have integrated information systems to monitor and control customer backoiders,
use LIS in making strategic decisions to improve operational efficiencies and
competitiveness, recognize the critical role LIS plays in the smooth operation of
the company, tend to have operating performances above industry averages, and
are extensive users of information systems throughout the organization.
A more advanced LIS exists in companies with high top management support.

Authors' Note: This research was funded by a grant from the Academic
Challenge Program ofthe ISOM Department, the University of Toledo, and supported
by the School of Business and Public Administration, George Washington University.
84 BARDI, RAGHUNATHAN, AND BAGCHI

NOTES

'C. A. Bartlett and S. Ghoshal, "Managing Across BordersNew Strategic


Requirements," Sloan Management Review 28, no. 2 (1987): 7-17.
^See for example, Richard J. Schonberger, Operations Management. Productivity
and Quality, 2nd ed. (Piano, Texas: Business Publications, Inc., 1984); Yash Gupta
and Prabir K. Bagchi, "Inbound Freight Consolidation Under Just-In-Time
Procurement: Application of Clearing Models," Journal of Business Logistics 8,
no. 2 (1987): 74-94; Prabir K. Bagchi, "Management of Materials Under Just-in-Time
Inventory System: A New Look," Journal of Business Logistics 9, no. 2 (1988):
89-102; and James H. Bookbinder and David M. Dilts, "Logistics Information
Systems in a Just-In-Time Environment," Journal of Business Logistics 10, no.
1 (1989): 50-67.
^Bhanu Raghunathan and T. S. Raghunathan, "Impact of Top Management
Support on IS Planning," Journal of Information Systems 5, no. 2 (Spring 1988):
15-23.
^A. J. Forster, "Power Strategies and Techniques for Obtaining Top Management
Input into MIS Master Plans," SMIS Conference Proceedings (Washington, D.C:
Society for Management Information Systems, September 1978), p. 57.
^Bhanu Raghunathan and T. S. Raghunathan, "Planning Implications of
Information Systems Strategic Grid: An Empirical Investigation," Decision Sciences
21, no. 2 (Spring 1990): 287-300.

ABOUT THE AUTHORS

Edward J. Bardi is professor of logistics and transportation at the University


of Toledo. He received his Ph.D., M.S., and B.S. degrees from The Pennsylvania
State University, majoring in business logistics/transportation economics. His primary
teaching experience has been in the area of business logistics, physical distribution
management, transportation economics, managerial economics, and marketing. He
has served as a consultant to numerous businesses and public agencies in the areas
of transportation, distribution, private trucking, warehouse location, marketing, and
economic development
T. S. Raghunathan is associate professor of information systems and operations
management at the University of Toledo. He received his doctorate in business
JOURNAL OF BUSINESS LOGISTICS, Vol. 15, No. 1, 1994 85

administration from the University of Pittsburgh. His current research interests include
infonnation systems planning and strategy, end-user computing, system design and
analysis, and expert system building.
Prabir K. Bagchi is associate professor of logistics and operations management
at George Washington University. He held several management positions with Philips
and Digital Equipment Corporation. His current research interests include total quality
management, benchmarking, logistics information systems, and international
logistics. He has also taught at the University of Toledo eind the University of
Maryland at College Park. He obtained his Ph.D. in business administration from
the University of Tennessee, Knoxville. He is a visiting professor in 1993-94 at
the Norwegian School of Management, Oslo, Norway.